UK households turn gloomier as inflation bites

LONDON: Households in Britain have become more worried about the outlook for their finances in the 12 months ahead as rising inflation puts a squeeze on their spending power, a survey showed on Monday. IHS Markit said its index measuring how households feel about their personal finances fell to 45.8 in June from 47.1 in May, the most pessimistic in three months and one of the lowest readings since the end of 2013.

The firm’s overall Household Finance Index, measuring how people feel about their current situation, rose to 43.8 from 42.6 but remained below the 50.0 no-change level. Britain’s main measure of inflation hit 2.9 percent in May, its highest level in nearly four years after last year’s Brexit vote hammered the value of the pound, and growth in wages is lagging behind, official data showed last week. That is eating into the spending power of consumers who typically drive British economic growth. “June’s survey reveals that UK household finances remain under intense pressure from rising living costs,” said Tim Moore, senior economist at IHS Markit. “While the squeeze moderated slightly since last month, worries about the outlook have deepened.”

The survey also showed 58 percent of respondents expected higher interest rates in 12 months time, more than double the figure seen after the Bank of England cut interest rates last August following the Brexit vote. The Bank kept rates at their record low of 0.25 percent last week but three members of its eight-strong Monetary Policy Committee voted for a rate hike, surprising investors and raising speculation that an increase in borrowing costs might come sooner than previously expected.